Economy growing at modest pace, Beige Book says

WASHINGTON (MarketWatch) -- The economy continued to expand at a moderate pace in most regions of the country, the Federal Reserve said Wednesday in its occasional Beige Book report on the economy.

Most regions reported steady, modest growth, with few heightened worries about inflation. The report's tenor was largely in line with the current views of Fed officials. Read the full report.

Consumer spending and manufacturing were growing in April and May, the 12 Federal Reserve banks reported. Housing remained weak, offset partially by better conditions for commercial real estate. Inflationary pressures were present, but not getting stronger.

"There was little information to change market perceptions," wrote economists for Goldman Sachs. "Despite noting higher energy and commodity prices, the report did not seem overly concerned about price pressures."

The anecdotal report, based on thousands of contracts around the country and produced by the Federal Reserve Bank of Philadelphia, painted a broadly upbeat view of the economy, which was growing either at a modest pace or at a slightly faster pace in all 12 regions, compared with the last Beige Book report in late April.

The Beige Book does not present the official views of the Federal Open Market Committee, which sets interest rates. Rather, the FOMC uses the Beige Book as a guide to its discussions. The FOMC meets next on June 27 and 28. Analysts expect no change in the Fed's interest rate target, now at 5.25%.

Consumer spending was generally up in most regions. Auto sales were little changed. Tourism was healthy despite high gasoline prices.

Manufacturing activity was expanding in most regions. Machinery and equipment manufacturers were strong, while those producing for the residential construction industry reported continuing weakness.

Residential construction and real estate remained weak, including in the South and Midwest. The most positive report on housing came from New York, where there was strength in the city and close-in suburbs. Mortgage lending was flat or falling in all regions, with New York, Atlanta and Chicago noting increased delinquencies.

The pace of hiring was higher in several regions, especially for those with specialized skills. Wage increases were modest in Atlanta, steady in Philadelphia and moderate in Minneapolis and San Francisco.

While rising food and energy prices were a concern, the "reports generally did not indicate an increase in overall price pressures," the Beige Book said.

Here's regional breakdown:

Boston

Businesses gave generally positive reports, except retail and tourism. Retail was mixed. Inflation was relatively stable, but some worry about high transportation costs.

New York

The economy expanded at a modest pace. The labor market tightened. Manufacturing picked up moderately. Housing markets were mixed, with strength near the city.

Cleveland

The economy grew at a modest pace. Manufacturing was stable or increasing, although auto production was down. Residential construction has yet to bottom out. Retailers were disappointed by sales. Hiring was up, with little wage pressures. Input prices were rising.

Richmond

Atlanta

The economy expanded modestly. Retail sales were flat year-on-year, with auto sales weak. Home building was weak, particularly in Florida and Georgia. Reports from manufacturers were varied. Severe drought conditions were hurting crops in Alabama, Florida and Georgia.

Chicago

The economy expanded at a modest pace. Residential real estate weakened. Manufacturing was little changed. Energy costs rose significantly, but other prices were rising at a steady pace.

St. Louis

The economy expanded modestly. Services reported continued expansion, but manufacturing was mixed. Home sales were mixed.

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